ABC child care goes under

By Vanda Carson

6 November 2008 — 11:56am

ABC Learning's board has appointed voluntary administrators Ferrier Hodgson whose first task will be to see if the company can be saved.

The company's banks, which together are owed an estimated $850 million, also brought in insolvency experts Chris Honey from McGrathNicol as receivers this morning to protect their interests as the main secured creditors.

Mr Honey said in a statement that ABC's child-care centres would remain open.

ANZ today calculated its exposure to ABC at $182 million, which contributed to sending its share price lower, while Westpac said after the close of the market its exposure is $200 million.

Govt won't take over operations

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Finance Minister Lindsay Tanner said the government was working to ensure centres were caring for children as usual, without taking over the operation from ABC Learning.

"Look, I wouldn't imagine we would be directly running them, but clearly one of the things we've been working through in recent weeks is the prospect of what might happen if this eventuality does emerge,'' he said.

Insolvency firm PPB was appointed to look after the interests of the Federal Government, which subsidises the care of more than 100,000 children at ABC's centres.

"The board and current management team are disappointed to be in this position despite the efforts of so many staff and the continued support of parents,'' chairman David Ryan said in a statement today.

The cave-in came a day after ABC attempted to reassure parents and investors by saying that talks were continuing with its banks and the government.

Ferrier Hodgson partner Peter Walker took the reins of the empire which was once worth more than $4 billion and will attempt to see if there is any way to save the company through a restructure.

Banks line up

Only last week the Commonwealth Bank moved to protect its loans of at least $600 million with an unlimited charge over ABC's assets, which include more than 1200 centres in Australia and New Zealand.

The bank has already written down $100 million worth of ABC Learning notes it held.

ANZ Bank has loans worth about $182 million and Westpac's exposure is $200 million.

National Australia Bank is also owed more than $100 million.

They have been supporting the company since it was plunged into crisis in February when it announced its half-year earnings had fallen 42% after hefty property developer payments were stripped out of its accounts on the orders of its new auditors.

The company's management, which until September included founder Eddy Groves, had attempted to avoid the intervention of an administrator by selling assets including the majority stake in its US business and its UK Busy Bees Childcare business, but it wasn't enough.

Its shares have been in freefall since the new accounting methods revealed just how badly the company's core Australian childcare centres were performing.

It triggered a series of profit downgrades and revelations of other third-party payments which appeared to have artificially inflated ABC's earnings.

Mr Walker's appointment follows ABC's failure to meet four consecutive deadlines it had set itself for the release of its financial accounts for 2007-08.

Preliminary report out soon

Creditors can expect to hear the administrator's preliminary view of the state of the company at a meeting expected to be held on November 18.

But a detailed report on the findings will not be released until a second meeting later this year, or early next year.

At its peak ABC was the largest publicly listed child-care operator in the world and a sharemarket darling, with a market capitalisation of $4.1 billion.

But its shares remain suspended at 54c, valuing the company at just $296 million.

They have been suspended for more than two months pending the release of the accounts which had been expected to contain losses of up to $600 million and wipe out all profits the company has made since it listed seven years ago.

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Shares worthless

Its 34,000 shareholders will not receive anything, as only secured creditors will likely claw back some of their funds.

Former chief executive Eddy Groves and his wife Le Neve, from whom he is separated, once had shares worth $325 million, now the pair have 16,000 shares which are worthless.

The pair are embroiled in a bitter legal battle over the wealth they accumulated while they were together.

The Australian Securities and Investments Commission is investigating whether the directors of the company breached any of their obligations under the Corporations Act.

A shareholder class action for damages worth more than $100 million has also been launched.